Late-Night Headlines
Bloomberg:
- Kleiner Perkins Caufield & Byers, the venture-capital firm that committed $100 million last year to back iPhone startups, said it plans to add money to the fund because of the “stunning” popularity of Apple Inc.’s device. “All we see is more innovation going on in mobile, more people doing more on mobile,” Matt Murphy, who manages the iFund in Menlo Park, California, said in an interview. “It’s pretty clear that we’ll go beyond” $100 million, he said.
- Nike Inc.(NKE), the world’s largest athletic-shoe maker, posted first-quarter profit that exceeded analysts’ estimates as it cut marketing and personnel costs. The shares gained 4.5% after the close of regular U.S. trading.
- Micron Technology Inc.(MU), the biggest U.S. producer of computer-memory chips, reported a narrower loss after an industry glut eased and product prices rebounded.
- Toyota Motor Corp. plans its biggest U.S. recall because of a defect that may cause floor mats to jam down the accelerator pedal on vehicles including the top-selling Camry and certain Lexus models. The floor coverings shouldn’t be replaced with other mats, according to a Transportation Department statement yesterday. The issue is “critical” and affects about 3.8 million Toyota and Lexus vehicles, according to Toyota City, Japan-based Toyota.
- French President Nicolas Sarkozy says even with a record budget deficit, France needs to spend more borrowed money to kick start economic growth. As the government prepares to unveil its latest tax and spending plans today, Sarkozy is promising a “grand loan” to finance spending on everything from Paris’s rail system to new supercomputers. That will swell a budget shortfall that already is the highest since 1959, the year after France’s post-war government collapsed and Charles de Gaulle took power. Sarkozy’s borrowing proposal puts him at odds with German Chancellor Angela Merkel and British Prime Minister Gordon Brown, who say they intend to rein in deficits swollen by the recession. The risk is that Sarkozy’s penchant for “investing” may spook bond investors even as they improve earnings prospects for companies such as Bouygues SA and Electricite de France SA. It may even undermine France’s top credit rating. “France is in a dreadful debt dynamic,” said Guillaume Sciard, who oversees 3 billion euros ($4.4 billion) of bonds at Barclays Wealth Managers France in Paris. “France will lose its AAA rating by 2012. In Europe, Germany may be the last to potentially keep its AAA.”
- Gordon Brown’s attack yesterday on bankers and the rich won praise from traditional supporters of Britain’s ruling Labour Party and risked alienating business leaders who helped his party win the last three elections. The prime minister’s plan to make banks “the servant of the people” and to create a 1 billion-pound ($1.6 billion) fund protecting industry was aimed at securing the support of unions and working-class voters. His speech to the Labour conference in Brighton followed a poll showing Brown behind the two main opposition parties for the first time since 1982.
Wall Street Journal:
- A bipartisan Senate vote swept aside demands by liberal Democrats for a government-run health insurance plan, delivering a potentially lethal blow to the most controversial measure of the proposed U.S. health-care overhaul. Dramatizing Democratic divisions on the issue, five Democrats joined with all Republicans on the Senate Finance Committee to defeat 15-8 a proposal by Sen. Jay Rockefeller for a government plan to help those who couldn't get affordable insurance through their employers. A similar proposal fell by a 13-10 vote. The two votes suggested that the "public option" is all but dead in the Senate, though it clings to life in the House, where Speaker Nancy Pelosi has said it will be included in a bill to be brought to the House floor. The idea could still revive if the White House weighs in strongly on its behalf. Another possibility is the "trigger" option, where the public plan takes effect only if other steps fail to expand coverage and lower costs. "I want a bill that can become law," said Sen. Max Baucus, the Finance Committee chairman, who voted with the Republicans against the public option. Mr. Baucus said the public option can't win 60 votes in the Senate. Tuesday's votes set up the big drama for the next two months: whether Democrats can put aside intraparty divisions and craft a bill that will win a filibuster-proof 60 votes in the Senate and a majority in the House.
- A federal judge Tuesday sentenced Democratic fund-raiser Norman Hsu to more than 24 years in prison for illegally funneling money to U.S. political candidates and for defrauding investors in a multimillion-dollar Ponzi scheme. The sentence of 292 months, handed down in a U.S. District Court in Manhattan by Judge Victor Marrero, was less than the 30 years that the prosecution had requested. Mr. Hsu rose from being a relatively unknown businessman in California to a prominent fund-raiser who pulled in hundreds of thousands of dollars for Hillary Clinton and some other Democratic politicians. A Wall Street Journal article in August 2007 raised questions about the legality of some of those donations. Later that year, Mrs. Clinton's presidential campaign agreed to return $850,000 in funds raised through Mr. Hsu.
- A liberal think tank with close ties to President Barack Obama says the administration and Congress should consider raising taxes on Americans to help close federal budget deficits, an opening salvo in what is likely to be a protracted debate on tax policy. In a draft report, the Center for American Progress says the size of projected budget gaps requires considering options including tax increases as well as curbs on annual spending and entitlement programs supported by Democrats.Such ideas could pose problems for Mr. Obama, who pledged during the campaign to not increase taxes on families making less than $250,000. The report, which will be released on Wednesday, said the administration can't rely on taxing richer Americans and companies to reduce the deficit to sustainable levels by 2014 because those groups would see 40% tax increases."In all seriousness, responsible people know that additional revenue has to be part of the mix even if they believe in lower taxes in general," the report concludes.The center's president and chief executive, John Podesta, who is an Obama adviser, said the administration should consider a tax on consumption, such as a value-added tax system similar to that in use in the European Union. Mr. Podesta suggested that its impact should be limited to protect lower-income people, who otherwise might be hit particularly hard.
- The public is not as dumb as it's made out to be, and Mr. Obama's public option died a bipartisan death yesterday in the Senate Finance Committee. What's left is a package of "reforms" that are mere trite extensions of what we've been doing for decades. That is, piling up mandates on private insurers and then lying that this somehow isn't driving up the cost of health insurance; piling up subsidies for health consumption and then lying that this somehow isn't responsible for runaway health-care spending.
- A recent shift in merchandising strategy by the world's largest retailer spells more trouble for DVD sales and the entertainment industry that depends on them for profits. As part of a larger effort to clean up its aisles and appeal to higher-end shoppers, Wal-Mart Stores Inc. (WMT) is doing away with display cases it has used in its stores to promote the latest hot movie titles. The move comes as major film studios are already reeling from sharp declines in revenue from DVD sales as cash-strapped consumers turn to low-cost rental services and digital downloads.
- In Boston's biggest office deal this year, Credit Suisse Group has acquired Independence Wharf, a waterfront office building, for $106 million. The seller, GE Real Estate, a unit of General Electric Co., purchased the 340,000-square-foot building for $82 million in 2002.
- The fate of CIT Group Inc. was hanging in the balance Tuesday as the large commercial lender readied a plan that would likely hand control of the company to its bondholders. CIT is preparing a sweeping exchange offer that would eliminate 30% to 40% of its more than $30 billion in debt outstanding, said people familiar with the matter. The plan would offer bondholders new debt secured by CIT assets, as well as nearly all of the equity in a restructured firm.
- Tsunami waves ripped across islands of the South Pacific, wiping out several villages and killing at least 34 people in Samoa and American Samoa, with the number of dead expected to escalate as more bodies are found. The tsunami followed a massive earthquake, with a magnitude of 8.0, according to the U.S. Geological Survey, that struck about 120 miles off the Samoan coast at 6:48 a.m. local time Tuesday.
CNBC.com: If carbon cap-and-trade becomes a reality, get ready for a potential multi-trillion dollar commodities market that could sprout up quickly, but not without growing pains. “I’m estimating carbon markets could be worth $2 trillion in transaction value – money changing hands – within five years of trading (starting),” says Bart Chilton, a Commodity Futures Trading Commission (CFTC) commissioner, who's also chairman of its energy and environmental markets advisory committee. “That would make it the largest physically traded commodity in the US, surpassing even oil.” The OTC market once dominated this voluntary carbon trading, but as tracking and trading infrastructure has grown, the Chicago Climate Exchange (CCX) took off. In 2008, it handled more transactions than the OTC for the first time ever, according to the New Carbon Finance report.
IBD:
- Hi-Tech Pharmacal (HITK) knows how to pick its markets, says Kevin Kedra, an analyst at Gabelli & Co. Picking the right drug gave the firm a blowout quarter. Hi-Tech, a maker of generic and over-the-counter pharmaceuticals, doesn't pursue high-profile drugs where competition is fierce, Kedra says. It aims at making and selling products that bigger generic manufacturers ignore.
The Deal.com:
- A survey by think tank Open Europe has concluded that a European Union's Alternative Investment Fund Managers directive, which proposes a sweeping regulatory overhaul, could lead to ongoing costs of between $1 billion and $1.44 billion as firms act to comply with the new rules. The directive, now in draft form, would do everything from limiting managers' ability to use leverage to requiring extensive disclosure to determining to where funds are sold.
Politico:
- The Senate Finance Committee spent more than five hours debating the public health insurance option Tuesday before voting down two Democratic amendments to add it to the bill. But the one person who will effectively decide its fate wasn’t even in the room. President Barack Obama got an early look at the depth of the Democratic divide on the government insurance option Tuesday — with Democratic Sen. Kent Conrad saying it would bankrupt North Dakota’s hospitals and Sen. John Rockefeller (D-W.Va.) saying it’s the only way to rein in ravenous, profit-hungry private insurers. Not long from now, Obama’s going to have to referee the whole thing.
Denverpost.com:
- Pet-food industry enjoys strong sales in weak economy.
Reuters:
- Electronics maker Jabil Circuit Inc (JBL) posted better-than-expected quarterly results helped by cost cuts and market share gains, and said it would cut a total of 4,500 jobs as part of its ongoing restructuring plan. Jabil, which makes products for other companies including handsets for Nokia (NOK) and computer hardware for Hewlett-Packard Co (HPQ), also forecast first-quarter results above Wall Street estimates, sending its shares up 8 percent in after-hours trade. "2010 should be a much better year than 2009 and our November quarter is a good start," Chief Executive Timothy Main said on a conference call.
- Coca-Cola Co and its largest independent bottler, Coca-Cola Enterprises Inc, are mounting a campaign against a possible U.S. tax on soft drinks. In addition to a print and digital ad campaign in seven key U.S. markets including Washington, D.C., New York and Los Angeles, the effort will include public relations, speaking engagements and education designed to emphasize to consumers the benefits of a balanced diet and lifestyle that includes exercise. "Clearly, the threat of a soft drink tax demonstrates the need to better educate our consumers on what we're doing to be part of the solution to the obesity problem in the United States," said Coke spokeswoman Diana Garza, adding that its efforts to fight obesity are ongoing. There have been increasingly vocal calls for taxes on sugary drinks and junk food to help fight the problem of obesity in the United States.
Financial Times:
- Britain’s intelligence services say that Iran has been secretly designing a nuclear warhead “since late 2004 or early 2005”, an assessment that suggests Tehran has embarked on the final steps towards acquiring nuclear weapons capability. As world powers prepare to confront Iran on Thursday on its nuclear ambitions, the Financial Times has learnt that the UK now judges that Ayatollah Ali Khamenei, Iran’s supreme leader, ordered the resumption of the country’s weapons program four years ago. Britain has always privately expressed skepticism about the US assessment on Iran but is only now firmly asserting that the weapons program. restarted in 2004-05. Iran’s chief nuclear official on Tuesday ruled out any discussions in Thursday’s talks with world powers over the country’s nuclear program. The comments by Ali-Akbar Salehi add to the pessimism that the talks in Geneva with the US, Britain, Germany, France, Russia and China will bear any fruit and will further fuel international suspicions about the link between Iran’s nuclear and missile plans.
- Venture capitalists have warned they risk suffering collateral damage as a result of the European Commission’s campaign to regulate the alternative investment industry. VC groups – providers of early-stage financing to start-ups, often before they make any revenue – say they have been inadvertently caught up in the hunt by Brussels regulators to pin the blame for the credit crunch on hedge funds and buyout groups. “We are very much caught in the crossfire of a directive that wasn’t intended for us,” says Les Gabb, finance partner at Advent Venture Partners, one of the UK’s biggest venture capital groups. “It was initially meant for hedge funds, with private equity added as an afterthought.” “Venture capital has no bearing on systemic risk. We use no debt at the fund level or at the portfolio company level,” says Alastair Breward, operating chief at Amadeus Capital, the UK venture capital group. “We are not hedge funds.”
- The internet has overtaken television to become the UK’s largest advertising medium, according to a report by PwC for the Internet Advertising Bureau. The UK is the first large media market to see such a shift. Spending on online advertising grew 4.6 per cent in the first half of 2009 compared with the same period last year to reach £1.75bn, driven largely by search engine advertising. By contrast, overall advertising spending fell 16.6 per cent. As a result, online’s share of the total grew from 18.7 per cent in the first half of last year to 23.5 per cent, ahead of TV’s 21.9 per cent.
Late Buy/Sell Recommendations
Citigroup:
- Reiterated Buy on (RIG), target $100.
- Reiterated Buy on (AMZN), target $100.
- Reiterated Buy on (MCK), raised target to $72.
Oppenheimer:
- Rated (DFT) Outperform, target $18.
Needham :
- Rated (MXIM) Buy, target $21.
Night Trading
Asia Ex-Japan Inv Grade CDS Index 115.50 unch.
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- (MIC)/-.12
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Economic Releases
8:15 am EST
- The Sept. ADP Employment Change is estimated at -200K versus -298K in August.
8:30 am EST
- Final 2Q GDP is estimated to fall-1.2% versus a prior estimate of a -1.0% decline.
- Final 2Q Personal Consumption is estimated to fall -1.0% versus a prior estimate of a 1-1.0% decline.
- Final 2Q GDP Price Index is estimated unch. versus a prior estimate of unch.
- Final 2Q Core PCE is estimated to rise +2.0% versus a prior estimate of a +2.0% gain.
9:45 am EST
- Chicago Purchasing Manager for September is estimated to rise to 52.0 versus 50.0 in August.
10:30 am EST
- Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +2,855,000 barrel gain the prior week. Gasoline supplies are estimated to rise by +1,000,000 barrels versus a +5,409,000 barrel gain the prior week. Distillate inventories are expected to rise by +1,200,000 barrels versus a +2,961,000 barrel gain the prior week. Finally, Refinery Utilization is estimated to fall by -.50% versus a -1.36% decline the prior week.
Upcoming Splits
Other Potential Market Movers
BOTTOM LINE: Asian indices are higher, boosted by technology and automaker shares in the region. I expect US equities to open mixed and to rally into the afternoon, finishing modestly higher. The Portfolio is 100% net long heading into the day.
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